Iqtisad Al Khaleej means, as I'm sure everyone except me knows, Economy of the Gulf. Unsurprisingly, it will be about economic, financial and political issues in the Gulf.

Tuesday, March 24, 2009

C**s, A**s and other crap

There are certain acronyms that instill fear in the heart of any investment banker, keep CFOs awake at night and cause regulators to tear their hair out.

Two of the worst are ABSs (asset-backed securities) and CDOs (collateralised debt obligations). Some of the most poisonous, noxious assets created in the past five years have been ABSs and CDOs, and the fact that no sane person wants to buy them is a large reason why many banks have suffered crippling writedowns.

But the Gulf states (probably led by Saudi) has agreed to buy Gulf International Bank's entire $4.8bn portfolio of ABS, CDOs and other dodgy debt. Why? Who knows. The Saudis move in mysterious ways.

In its annual report released on Monday, GIB said it sold its entire $4.8bn portfolio of asset-backed securities, collateralised debt obligations and risky subordinated debt to its shareholders. The deal amounts to a sale of almost two-thirds of the bank’s entire investment portfolio, leaving only about $2.2bn of largely highly-rated government debt.

“It's a pretty big bail-out,” said Robert Thursfield, a director at Fitch Ratings in Dubai. “They've managed to offload a massive chunk of their asset portfolio. They've left the remainder of the investment portfolio as low risk as possible.”

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